Abu Dhabi throws a lifeline to sinking Dubai

The UAE's best laid plans, however, could come under pressure if Dubai's debt proves to be heavier than it is being made out to be
Sanjay Kapoor Dubai

Cruising on a fully automated driver-less Dubai Metro can be a heady experience till someone points out the innumerable carcasses of deathly recession that have hammered this desert kingdom. The Rashidya-Jebel Ali elevated metro line, longer than the Vancouver sky train, runs parallel to the speedways that whiz past many of the famous Dubai landmarks like the Burj-al-Dubai. Everything looks normal, but a surreal element envelops the terrain when passengers casually point out the 'to let' signs hanging on the buildings or the mass of cars parked in an empty desert space.

Says a local journalist: "The entire buildings are up for rent. Have you seen anything like that?" He also points out at the cars left behind by fleeing expatriates who did not want to be incarcerated for defaulting on loans taken from the banks.

While expatriates could run away from their obligations and immerse into the nothingness that lies beyond the desert frontiers, there is no such luck for many of the Dubai companies like Dubai World that have been forced to default on their gargantuan debt.

Dubai's total debt is around $80 billion and if the misery of Dubai World and a construction company, Nakheel, is anything to go by, then the uncanny happenings in this small Sheikhdom could prove to be the proverbial black swan for the world economy, which is slowly clawing its way up from the deep debris and abyss of last year's meltdown. There are genuine fears that the Dubai defaults could once again trigger a sharp downward spiral in the world economy.

Dubai has been walking a tightrope since the Lehman brothers went broke last year. The easy money that sustained this over-leveraged re-trading desert megapolis suddenly started going up in smoke. Besides the ambitious metro train, Dubai's dream projects that celebrated greed, hedonism, big bucks and promised to catapult this affluent society to a different rarefied level like the Atlantis, Dubai World, The World, Dubai Marina, began to look broodingly nightmarish. The celebrities that spent their fortunes in buying a part of this outlandish, artificial dream world discovered that the sand was slipping out of their hands.

Indeed, buildings like the Atlantis and Burj-al-Dubai became the symbol of everything that was wrong with an economy that believed in making money from money and indulging in mindless diversification. So prohibitive was Dubai's real estate that it alienated many of those who came to work here. Many of them had to drive from long distances to work here.

Recession has brought about 40-50 per cent correction in real estate prices. After Dubai World's debt default and its cascading impact on other companies, there are fears that this city could get de-populated if the large expatriate population lose their jobs and begin to return home in an unprecedented exodus which will shake many economies, including that of India.

All this can perhaps be stalled if Abu Dhabi, the capital of United Arab Emirates, decides to underwrite Dubai's Himalayan debt and take matters in its own hand.

Since recession struck Dubai, Abu Dhabi has thrown a lifeline of $10 billion and made another provision of $5billion. During a recent trip to Abu Dhabi, Hardnews along with correspondents from other countries had a chance to interact with Vice President and Prime Minister of UAE and Ruler of Dubai, Muhammad bin Rashid Al Makhtoum. The meeting took place on November 19, a few days before the huge default by Dubai World, and did not provide any indication of what might follow.